Alizz Islamic Bank

AUGUST 2019

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ALIZZ ISLAMIC BANK

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The first modern Islamic bank was established in Egypt in 1963, but the traditions of Sharia’hcompliant banking date back as far as Islam itself.

The 1970s saw the Islamic Banking sector set down official roots and flourish in size following the Yom Kippur War and 1973 oil crisis, it enjoyed a vast boom in the ‘80s, and has continued to grow at a steady rate ever since.

Written by Alice Instone-Brewer

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n 2012, the Sultanate of Oman finally made it possible for such banks to operate as independent entities within the country; we spoke with Venkatesh Kallur, Chief Risk Officer at one such bank - Alizz Islamic Bank.

In 2012, a Royal Decree in the Sultanate of Oman amended the country’s banking laws to allow for Islamic, Sharia’h-compliant banking at licensed banks. This change to the law allowed existing banks to set up specialised Islamic branches, and also for entirely dedicated Islamic Banks to be established. Alizz Islamic Bank was one such entity that emerged thanks to this change in the law; founded in November 2012 and launched in September 2013, the bank’s operations are wholly Sharia’h compliant. We spoke with Venkatesh Kallur, the bank’s Chief Risk Officer, who broke down what Alizz offers for us in more detail: “Alizz Islamic Bank provides retail and corporate finance along with treasury, investment & project financing through its head office and branch network, online and on mobile devices. Alizz Islamic Bank is here to deliver exceptional and sustainable results to our stakeholders by providing superior Sharia’h compliant financial solutions. We are headquartered in the Central Business District

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Area in Ruwi and conduct our banking business within the Sultanate of Oman. We plan to decentralize every local Alizz Islamic Bank branch, satisfying all our customers’ financial needs and helping them succeed financially.”

When the bank was launched, the total paid up capital was 100 million Omani Rials.

40% of this was raised by public investors during the Initial Public Offering (IPO), whilst 60% was contributed by the bank’s promoters.

This foundation allowed Alizz to begin on a strong footing – important, when the state of the banking industry in Oman comes with its challenges. As Venkatesh explained: “The macroeconomic environment is challenging, where the typical issues of liquidity and capital adequacy do exist. However, the government is taking active steps to boost the economy and raising capital from the international money market. The Government is focussing on diversifying the economy through a special thrust on petrochemical, manufacturing, tourism, healthcare and education. The banking industry is equally aligned to the above national strategy, and there is considerable competition through established players in the local market.”

Since its inception, Alizz Islamic Bank has aimed to become the leader of Oman’s Islamic banking sector. Its current aim, on its path to pursuing this status, is to grow the business into a Billion Omani Rials (Approx. USD 2.6 Billion) balance sheet in the near future. Its strategies for achieving this have included diversifying its investment portfolio into sectors such as healthcare, education, tourism and manufacturing, as well as taking a heavier focus into oil and gas. The bank has also invested in developing its own operations through increased automation to speed up customer service, and new digital banking services covering phone services, online services and apps.

“Looking to the future,” Venkatesh told us, “I personally believe that information technology, information security and digital banking – be it on mobile phones, computers or tablets – needs to be considered.”

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Before coming to Alizz, Venkatesh had over 35 years of banking experience across three continents, in six countries and in multiple languages. “From North American financial institutions like American Express and the Bank of Montreal, I have moved to the world of Islamic banking in Saudi Arabia.” Over the course of the next two years, Venkatesh worked first at Alinma Bank and Bank AlZajira, and then moved to Alizz Islamic Bank in August 2017, bringing his firm a wealth of experience in banking with him.

At Alizz, Venkatesh serves as the bank’s Chief Risk Officer (CRO). During his time in the banking sector, Venkatesh has seen the nature of the industry transformed by the rise of digital banking: “I had the privilege of watching the advent of online and mobile banking revolutionise financial exchange on a global scale, but at the same time, I have borne witness to the proliferation of new challenges and digital risks.”

“The introduction of new technologies to any sector results in a shift in the culture of the organisation, but I believe Alizz is more than equipped to manage change,” he expressed with confidence. However, as well as a cultural shift to the speed and manner of its operations, Alizz has also had to take the shift of adjusting to the new risks and security demands that come with digital banking. As the bank’s CRO, Venkatesh was able to break down the areas of focus and concern that arise when a bank goes digital: “Banks are rethinking what constitutes operational resiliency.

Beyond core competencies (business continuity and disaster recovery), data quality and processflow mapping need enhancing. In managing cyber risks across the three lines of defence, quantification and reporting are a challenge.

Managing critical vendors more effectively also supports operational and cyber-resiliency.”

By the “three lines of defence”, Venkatesh is referring to a risk management model that the bank employs. The three lines of defence themselves in this model are operational management, risk management, and internal

ALIZZ ISLAMIC BANK

audit. “Operationalisation of the three-line defence model is necessary to improve the effectiveness and cost-efficiency of risk management. Talent shortages are expected in advance, we run predictive behavioural analytics, risk models etc, and standardisation and automation are accelerating, even if broader technology deployments are delayed.”

Of course, digitalisation is not just a frontier where risk must be fielded – it is also an incredible tool in helping to perform risk management as a whole. Venkatesh expressed his desire to lead a digital transformation of risk management in Alizz: “Risk functions must change in terms of how they monitor risk profiles and enable innovation, and become smarter, faster and more cost-effective.” These increased efficiencies would help to manage risks more cost effectively, including nonfinancial risks, which is another area in which Venkatesh wishes to improve, both at Alizz and in the industry in general: “Though conduct risk

frameworks are in place, there is a long way to go to prove effectiveness and improve costefficiency. As risk appetite frameworks evolve, common challenges remain (e.g., expressing appetite for all risk types, cascading appetite to business units). Quantifying non-financial risks (e.g., reputational, strategic and cyber risks) remains difficult.” However, it is cybersecurity and the broader playing field that digitisation allows that remains his priority: “Broader geopolitical, social and environmental concerns are looming larger, as regulatory fragmentation continues and competition intensifies. Fintechs and major technology companies seek traction in profitable parts of financial services, while banks’ strategic options to deliver 11% to 15% ROE narrow. Cybersecurity is now clearly the top risk for Boards and CROs.” As well as looking after its assets and security, Alizz takes care of its staff. This effort is proven by its attrition rates, which are the lowest in the Omani banking industry. The bank offers its 300

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staff regular training, both classroom, CBT and on-the-job, and prioritises internal promotions where it can. The company not only looks after its staff with this official support, however – it also takes care of them in the day-to-day support of managerial communication and encouragement. Venkatesh is a firm believer in the importance of this, and makes sure to take his staff’s talents, involvement and feelings into account, when he manages his department: “I strongly believe in influential leadership instead of authoritative leadership. Working within an influential leadership model, committed employees will give up discretionary time to solve problems, serve customers, and think creatively. On the other hand, people working under authoritative leadership will work to achieve compliance, doing only what needs to be done to get by.”

“As a leader, I always help people understand how their contributions fit into the broader vision and inspire the team to achieve the

Testhouse, the global testing and Quality Assurance leader, designed, built and streamlined the QA function/ framework for Alizz Islamic Bank in their digital transformation journey.

With close to two decades of deep expertise in banking and financial services domain, Testhouse is testing and assuring the top 20 middle east banks in digital banking, core banking, Islamic banking, channels, cards & payments, insurance, GRC and many other services.

greater good of the organisation. Inspiration is not mandated, dictated or driven by authority - it is achieved by enlisting others, touching the hearts of employees whilst engaging their brains.”

Clearly, Alizz’s approaches are working – both in its approach to its operations and its staff. The bank and its employees have received multiple accolades in recent years: in 2017, the company won the Best Islamic Banking Brand award at the Global Brand Awards, after having only been in operation for four years. In 2018, its Assistant General Manager, received the Head of Strategy and CSR, Aisha Al-Kharusi, received the Middle East Woman Leader Award, and in 2019, its CEO, Salaam Said Al Shaksy, won Top CEO 2019 at the Islamic Banks at the Top CEO Conference and Awards. Finally, in keeping with Venkatesh’s current desire to focus on this area, the company received the ‘Excellence in Digital Banking’ award at the New Age Banking Summit.

With this strong, award-winning leadership and a carefully monitored and protected approach to risk, success is inevitable, and as Venkatesh believes strongly, success breeds success: “Success is addictive. Once we make the team taste success, that in itself motivates the staff to go beyond their means and give what it takes to complete the job with the utmost quality and timeliness.”

It is no wonder, then, that Alizz Islamic Bank is receiving the recognition that it does. Even though it is a young bank in an equally young sector of banking (one that has only existed since the Royal Decree made it possible in 2012), it has quickly risen to the top names in its field, and should continue to rise as its expansion into the potential offered by digitalisation continues, and as Venkatesh continues to push its operations towards excellence and guards them against pitfalls.